RayzeBio: Raising The Bar In Solid Tumor Radiotherapy

Introduction

On September 15, RayzeBio (NASDAQ:RYZB) efficiently raised $358 million in an preliminary public providing (IPO) that was upsized in response to robust retail demand. Because the shares have bought off over the previous week in this turbulent market setting and at the moment are approaching the unique $18 per share provide worth, it might be an excellent time to revisit the corporate and assess its prospects.

RayzeBio has a promising platform of peptide receptor radionuclide remedy (PRRT) oncology medicine in improvement for the remedy of stable tumors. PRRTs are a brand new class of medicine that provide distinct benefits over each exterior beam remedy (EBT) and antibody-drug conjugate (ADC) remedy. Whereas EBT is mostly used to deal with localized lesions that may be readily visualized by imaging, PRRT is ready to selectively goal most cancers cells by recognizing and binding to particular overexpressed protein targets, leading to much less off-target toxicity. In comparison with ADCs, remedy with PRRTs gives a number of advantages, together with larger efficiency, deeper and broader tumor distribution, no want for mobile internalization, and avoidance of drug efflux transporter-mediated resistance.

The corporate’s lead drug candidate, RYZ101, a somatostatin receptor sort 2 (SSTR2) therapeutic, is at the moment being evaluated in a Part-3 scientific trial in comparison with investigator-selected standard-of-care (SOC) remedy in sufferers with gastroenteropancreatic neuroendocrine tumors (GEP-NETs) whose most cancers has progressed following remedy with Lutetium 177 (Lu177) beta-particle radioisotope remedy. The first endpoint for the trial is progression-free survival (PFS).

The corporate estimates the incidence of GEP-NETs to be roughly 18,000 sufferers a 12 months within the US with 40-76% of them having metastatic illness on the time of prognosis whereas, on a global foundation, 23,115 circumstances had been reported in 2020 within the 7MM markets (US, Germany, France, Italy, Spain, the UK, and Japan), representing a market of simply over $2.81 billion. As for the dimensions of the general affected person inhabitants, the corporate estimates it to be as giant as 200,000 sufferers.

The first remedy possibility for GEP-NETs is surgical removing. Nevertheless, as many sufferers are identified with superior localized or metastatic illness, this isn’t an possibility for a lot of sufferers. Relating to drug remedy, the present first-line remedy for metastatic illness is a somatostatin analog (SSA) resembling octreotide acetate (model identify: Sandostatin) or lanreotide (model identify: Somatuline Depot). These medicine deal with the signs of hormonal overproduction and might have a cytostatic impact. Historically, the popular second-line remedy was a mTor inhibitor resembling everolimus (model identify: Afinitor) or sunitinib (model identify: Sutent). Nevertheless, as these drugs present a modest progression-free survival profit and sufferers generally have tolerability points, they’ve been falling out of favor amongst practitioners and at the moment are continuously changed by newer peptide receptor radionuclide remedy (PRRT) medicine.

In separate scientific trials involving radiotherapy-naive sufferers, everolimus and sunitinib had general response charges (ORRs) of 5% and 9%, respectively. In distinction, in a Part-3 trial, Novartis’s Lutathera, a not too long ago permitted PRRT, demonstrated a considerably larger ORR of 13% and a PFS of 28.4 months. However, as most sufferers relapse after round 28-31 months and proceed to outlive for as much as an extra 40 months and no FDA-approved remedy choices can be found for sufferers whose illness progresses additional, RayzeBio sees a market alternative right here.

The corporate’s lead drug, RYZ101, is a PRRT that delivers a extremely potent alpha-particle radioisotope to tumors overexpressing SSTR2. The drug consists of DOTA-TATE, an FDA-approved peptide binder, and a chelator sure to the alpha-particle radioisotope. As SSTR2 is expressed in 80-90% of GEP-NET tumors however expressed at a lot decrease ranges in wholesome tissue, it is a perfect receptor to focus on. Based on the corporate, alpha-particle radioisotope PRRTs provide a number of benefits over beta-particle PRRTs resembling Lutathera, together with the switch of as much as 400 instances extra radiation power, much less off-target mobile harm from oxygen-free radicals, better efficacy in hypoxic tumor environments, more practical tumor killing as a consequence of double-stranded (versus single-stranded) DNA cleavage, and fewer post-treatment affected person restrictions.

Alongside the Part-3 ACTION-1 trial for the GEP-NETs indication, RYZ101 can also be being investigated in a Part-1b trial as first-line mixture remedy with present SOC remedy in sufferers with In depth Stage Small Cell Lung Most cancers (ES-SCLC) with SSTR2 expressed in no less than 50% of their lesions. As lung most cancers is the second most widespread most cancers within the US, with an estimated annual incidence of 238,440, and SCLC makes up 14% of those circumstances, it’s a giant addressable market.

Lastly, the corporate has a pair of investigational medicine (RYZ801/811 and an unnamed small molecule compound) within the IND-enabling part for the remedy of hepatocellular carcinoma and renal cell most cancers, respectively. As these are nonetheless in an early developmental stage, I will not delve into additional element on them at this level.

The Interim Outcomes of the Part-3 Trial

RayzeBio not too long ago reported interim results as of June 30, 2023, from the Part-3 scientific trial primarily based on 17 sufferers (out of an estimated goal variety of 31). A partial response (PR), outlined as a 30% discount within the sum of the goal lesion diameters, was confirmed in 5 of 17 sufferers, representing an general response price (ORR) of 29%. The corporate furthermore indicated that the remedy was effectively tolerated with no treatment-related severe opposed occasions (SAEs) or opposed event-related dose discontinuations.

Whereas this ORR sounds spectacular, evaluating the outcomes to Lutathera is like evaluating apples to oranges because of the variations in research design between the 2 trials (the Lutathera NETTER-2 trial concerned first-line use together with long-acting octreotide whereas RYZ101 was administered as a monotherapy to sufferers whose most cancers had progressed after remedy with Lutathera). However, as each the NETTER-2 and ACTION-1 research populations consisted of sufferers with superior GEP-NETs and the RYZ101 sufferers had already failed prior remedy with Lutathera, an ORR of 29% appears promising at first look. Nevertheless, because the research is just not anticipated to be accomplished till the tip of 2026 and we nonetheless do not know what the PFS (major endpoint) will appear to be or how the drug’s efficacy and security profile will examine to the SOC therapies, we’re nonetheless within the very early innings.

RayzeBio reported the next Grade 3 or larger opposed occasions within the interim read-out: decreased lymphocyte depend (17.6%), anemia (17.6%), decreased creatinine clearance [a potential indicator of kidney damage] (11.8%), and weight reduction (5.8%). No treatment-related SAEs had been reported. This compares favorably to Lutathera, the place the next Grade 3 or larger opposed occasions had been reported: lymphopenia (44%), elevated GGT (20%), AST (5%), and ALT (4%) [potential indicators of liver damage], vomiting (7%), nausea (5%), hyperglycemia (4%), and hypokalemia (4%) together with a number of much less widespread, however probably life-threatening SAEs, resembling MDS (2%), renal failure (2%), cardiac failure (2%), acute leukemia (1%), hypotension (1%), myocardial infarction (1%), and neuroendocrine hormonal disaster (1%).

Assigning a Worth to the Portfolio

There are quite a few methods to assign a worth to a biotech firm’s drug portfolio. Maybe the most typical strategies are web current worth or risk-adjusted web current worth, which fashions an organization’s future money flows, and competitor evaluation, the place a market worth is calculated on the premise of the quantity paid for corporations in an equal developmental stage with related merchandise. As I firmly consider that the extra variables you introduce into an evaluation, the upper the possibility that you will get it incorrect, I’ll maintain it easy and base my evaluation on only one variable: peak gross sales.

For RYZ101, RayzeBio estimates that the addressable affected person inhabitants consists of roughly 7,000 patients present process prior remedy with Lutathera. As a number of corporations are at the moment creating focused alpha-based PRRTs for the remedy of most cancers, together with Bayer (OTCPK:BAYRY), Novartis (NVS), Johnson & Johnson (JNJ), Abdera Therapeutics, Actinium Prescribed drugs (ATNM), Aktis Oncology, Convergent Therapeutics, Debiopharm, Fusion Prescribed drugs (FUSN), ITM Isotope Applied sciences Munich SE, Lantheus Holdings (LNTH), Mariana Oncology, Perspective Therapeutics (CATX), POINT Biopharma (PNT), RadioMedix, Telix Prescribed drugs (OTCPK:TLPPF), and Y-mAbs Therapeutics (YMAB), I believe it could be optimistic to imagine that they may seize greater than 50% of this inhabitants (i.e., 3,500 sufferers).

Whereas the value/remedy of Lutathera is at the moment round $230,000, because of the later line of remedy, improved efficiency, and simpler drug dealing with, the corporate believes that it will likely be capable of cost a premium worth for RYZ101. If we throw a dart (because the firm has not indicated precisely what they are going to worth the drug at) and assume a 50% premium, it offers us a worth/remedy of $345,000. Multiply that by a peak inhabitants of three,500 sufferers and we arrive at peak gross sales of about $1.2 billion. This appears somewhat excessive contemplating that almost all peak gross sales estimates for Lutathera vary from round $650 million to over $800 million. Nevertheless, the Lutathera estimates are solely primarily based on the permitted mid-gut indication. Enlargement into different forms of GEP-NETs has been estimated to extend the potential affected person inhabitants threefold.

For the web current worth calculation, I’ve made the next assumptions:

1. FDA approval in 2030 (approx. 2 years after completion of the Part-3 trial)

2. Peak gross sales reached in 2036 (primarily based on the typical of 5-7 years after approval for oncology medicine)

3. Low cost price utilized: the present 10-year US treasury bond price (4.54%)

4. Threat-adjusted approval issue (primarily based on the clinical success rates for oncology medicine): Part 3: 35.5%; Part 2: 6.7%; Part 1: 3.4%

This offers us a gift worth of $673.8 million for RYZ101. Making use of the risk-based low cost issue to account for the chance of approval, we arrive at a gift worth of $239.2 million for the height gross sales of RYZ101 for the GEP-NET indication. Nevertheless, as a number of PRRT medicine, resembling Pluvicto and Lutathera are already in the marketplace and the FDA has already permitted the usage of RYZ101’s peptide binder, DOTA-TATE, for SSTR2 diagnostic imaging and therapeutic brokers, the drug has been de-risked to a sure extent. Subsequently, I consider that the general success price for Phase-3 trials (59%) is a extra appropriate risk-adjusted approval issue. This ends in a risk-adjusted current worth of $397.5 million for the height gross sales.

As RYZ101 can also be concerned in a Part-1 trial for first-line use in ES-SCLC, it is usually included within the web current worth computation. Nevertheless, as I am unable to discover any steerage from the corporate estimating the dimensions of the focused affected person inhabitants or worth per remedy, it’s unimaginable to precisely predict what the height gross sales would possibly appear to be as soon as the drug is finally permitted for this indication. As RayzeBio signifies within the S-1/A that 33,400 new circumstances of SCLC are identified every year, the place 66% of the sufferers have metastatic illness and roughly 50% specific SSTR2, we will arrive at an estimated affected person inhabitants within the US of round 22,000 sufferers yearly (the addressable inhabitants would naturally be bigger if we embody different 7MM international locations).

The height gross sales of Roche’s Tecentriq have been estimated at $2.8 billion, together with a modest quantity of gross sales from second-line use, whereas its price per remedy is simply over $160,000. If we make the idea that RYZ101 could be priced equivalently and assume a affected person inhabitants of simply 11,000 (50% of US sufferers) within the 12 months by which peak gross sales are reached, we arrive at a determine of $1.76 billion (that is in all probability on the conservative facet because it ignores gross sales in worldwide markets).

Assuming that peak gross sales are reached in 2039 and making use of the remainder of the assumptions listed above, we get hold of a web current worth of $865.0 million for peak RYZ101 gross sales from the ES-SCLC indication. Making use of the risk-adjusted approval issue for Part-1 medicine offers us a risk-adjusted current worth of $29.4 million. As soon as once more, nonetheless, because the drug has been considerably de-risked, I believe it’s extra applicable to use the general success price for Part-1 medicine (13.8% versus 3.4% for oncology medicine), which then offers us a risk-adjusted web current worth of $119.4 million.

Since the remainder of the corporate’s drug portfolio has but to advance into the clinic, I’m not assigning any worth to those medicine.

If we err on the facet of warning and apply the extra conservative estimates, the web current values for the height gross sales of each medicine add as much as $268.6 million. In any other case, if we assume that the medicine have been de-risked sufficient to advantage the upper risk-adjusted approval components, we arrive at a significantly larger general web current worth determine ($516.9 million).

Dividing the corporate’s present market cap ($1.144 billion as of Sep. 25) by the extra conservative risk-adjusted approval components ends in a Value/Gross sales a number of of 4.26 in comparison with the business common for biotech corporations of 5.78. If we as a substitute give attention to the corporate’s present enterprise worth ($945.7 million as of Sep. 25), we arrive at an EV/Income a number of of three.52 in comparison with the business common of 6.18. Utilizing the much less conservative figures yields much more enticing multiples: 2.21 (P/S) and 1.83 (EV/Income).

Upcoming Catalysts

Probably the most instant upcoming catalysts on the horizon are the rankings that may pour in from funding analysts as soon as the quiet period expires on October 25. Apart from this, there are a number of potential catalysts subsequent 12 months, together with up to date Part-1b knowledge from the RYZ101 ACTION-1 trial, IND submission for RYZ801/811, human imaging outcomes for the corporate’s small-molecule CA9 drug, preliminary Part-1b knowledge from the RYZ101 ES-SCLC indication, and the graduation of compassionate-use remedy for RYZ801/811 in hepatocellular carcinoma sufferers.

The Bull Case

Because of their improved efficiency, deeper, broader tumor distribution, and higher avoidance of drug resistance mechanisms, PRRTs have the potential to be a sport changer, changing ADCs because the remedy of selection for a lot of stable tumors. FDA-approved alpha- and beta-based PRRT medicine resembling Xofiga, Pluvicto, and Lutathera all boast projected peak gross sales that strategy or exceed $1 billion whereas the US TAM for the GET-NETs indication RayzeBio is concentrating on has been estimated at around $800 million. Alpha-based radioisotope PRRTs resembling RYZ101 provide a number of necessary advantages over beta-based ones like Lutathera, together with stronger radiation power switch, extra environment friendly most cancers cell killing, and fewer post-surgical affected person restrictions. Furthermore, there’s extra optionality in RayzeBio’s pipeline if the corporate is profitable at figuring out extra stable tumor cancers, resembling ES-SCLC, the place the SSTR2 receptor is expressed.

With profitable healthcare hedge fund backers resembling VenBio and Viking World, an skilled administration staff, and a money runway by means of 2025 (per the corporate’s assertion within the S-1/A), on the present worth, I really feel that RayzeBio makes a compelling funding case with plenty of photographs on objective.

The Bear Case

As with all development-stage biotechs, there are quite a few dangers concerned with any funding. There’s a lengthy listing of opponents with alpha- and beta-based PRRTs at the moment present process scientific trials, a few of whom have far better sources than RayzeBio. Furthermore, the corporate’s success in acquiring FDA approval for his or her drug candidates will rely on their capability to boost capital to fund the scientific trials in addition to the efficacy and security profile of their medicine compared to different remedy choices. As well as, as an rising progress firm, as outlined within the JOBS Act, the corporate is exempt from sure public reporting necessities. Lastly, as a vertically built-in firm, manufacturing missteps could happen, resembling failure to acquire cGMP certification, which may outcome within the delayed approval or rejection of the corporate’s drug candidates.

General Ranking

General, I believe that the inventory is an efficient worth at this stage and am very enthusiastic in regards to the potential for alpha-based PRRTs to shift the paradigm in relation to the remedy of superior stable tumors. With a product in superior Part-3 testing and a promising drug pipeline with optionality for different stable tumor purposes, I price RayzeBio as a speculative Lengthy-term Purchase.

So far as the timing goes, with out the privilege of a crystal ball, I might in all probability accumulate shares both proper earlier than the tip of the quiet interval (October 25) or across the time that the 180-day lock-up interval expires.

Ranking (on a scale of 1-5, the place 1 pepper is a supreme fail and 5 peppers is a smashing hit)